Oil had a massive rally Friday and stocks in the US and Europe ended the week on a strong note as traders took the combination of a conciliatory Janet Yellen and hopes of an OPEC/Russia/others meeting positively.
That strength powered the ASX SPI 200 futures more than 80 points higher to 5,785 for a 1.9% rally. That almost halved the week’s losses and the market looks set to open stronger today. Whether it can hold those gains in the face of the return of Chinese traders after the New Year holiday and the release of Japanese GDP (the Nikkei lost more than 11% last week) is the question.
On forex markets, USDJPY bounced a little further, ending above 113. The Aussie is fairly becalmed and gold’s rally took a breather with the yellow metal around the $1,140 mark.
And the top stories:
1. Oil had its best day in years but it’s still below $30 a barrel. Twitter might be having problems with its share price as its monthly active users plateau but that doesn’t mean the platform still can’t move markets. Oil’s strong surge after a tweet Thursday is a case in point.
Oil’s rally started Thursday with this tweet saying there was a prospect of coordinated talks/cuts involving OPEC and Russia. Friday’s 12% rally built on the previous night’s turnaround. But the big question is whether or not the rally has legs and crucially if the Saudis are up for one given Iran is back in the mix. BAML says no and Elena Holodny reports the Saudis aren’t ready to fold yet.
2. A bottom for stocks? I first started writing a morning note like this in early 1999 when I was Westpac’s currency strategist. Back then there were few such notes and my morning missive gained some traction with clients – so I continued. Over the years, writing thousands of these notes has taught something very important, something I always take seriously. That is, when I unconsciously change my view on a market or markets then – as a trader – I need to look at the drivers behind that change of view.
So it was Friday that I sensed an unconsciously bullish tone in my 6 things. That was then supported by Tom DeMark who said he thought the US stock markets was likely to bottom in the next few days. Both our views are largely based on technical – trading – indicators.
But on Thursday, Ambrose Evans-Pritchard made a very coherent case for why this is a global stock market rout worth celebrating. His primary hypothesis is that the crash in oil is a massive transfer from oil producers to global consumers. That acts like a tax cut and will start to come through in the data in the US, globally and in China.
Much bad news is built into prices for the moment and the sellers in oil and maybe stocks look exhausted. So maybe Friday’s gains were the start of a bigger recovery for stocks.
My favourite, and I think the best, global strategist, Marc Chandler, agrees. His latest blog is titled “The World is not Ending (Yet), Panic To Subside”.
3. This Australian hedge fund billionaire says new banking regulations are “madness” and screwing markets. Sir Michael Hintze is the 62-year-old founder of the CQS hedge fund based in London. Speaking to the AFR in a wide-ranging interview, Hintze neatly put his finger on how new banking regulations are not letting markets heal and so exacerbating the turmoil in 2016.
Hintze said by not letting markets clear, the new regulations have “ripped the signalling out of the system…This means more volatility.” I’ve got more here.
4. China’s central bank governor says we can relax about a big devaluation in the yuan. The hedge funds are lined up against it but the People’s Bank of China (PBoC) has sent a strong message over the weekend that it won’t be folding anytime soon.
In an interview published over the weekend in Caixin (via the FT), Zhou Xiaochuan, governor of the PBOC, said that even though the West is concerned about capital flows, they are “within the normal region”. He added this is capital flow, not capital flight.
On the currency he said:
“The total trade surplus in 2015 was close to $600bn and net export’s contribution to GDP was not low so there’s no motive to depreciate the renminbi for the sake of net export expansion.”
Take that hedge funds! “China will not let market sentiment be dominated by these speculative forces,” he said.
5. This is a sleeper but Europe is pressuring Greece all over again. Okay, so this one isn’t about debt or finance ministers wearing biker jackets. But Europe is again upping the pressure on Greece. This time it’s about the refugee crisis and the free transit – Schengen passport – system.
Elena Holodny reports that the European Council said “the overall functioning of the Schengen Area is at serious risk…the difficulties faced by Greece have an impact on the EU as a whole”.
We’ve heard that all before. But I raise this because if Europe cuts the Greek population off from Schengen, the questions might be raised around the halls of Athens about what the real benefits of membership and ultimately honouring their financial/debt commitments might be.
6. It’s another big week ahead for markets. China back today, the US out tonight, six Fed speakers this week, Australia’s unbelievable employment stats Thursday and so much more. On the Fed, the NAB’s economics team said each of the speakers have their “own perspectives on the markets, monetary policy and the economic outlook”. That could make things interesting and some may differ from the conciliatory message Janet Yellen delivered to congress last week. Here’s my diary of all the key events and data for the week.
You can catch me on Twitter.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Friday’s oil price rally is going to be a key feature of markets for at least the next couple of days. The rally had plenty of momentum but it’s yet to break any significant resistance. Given the strong momentum it could easily do so but at this stage the oil chart is still inconclusive.
Woodside’s profit result is due on Wednesday and its chart is still well below major resistance. The trend line and 100 day moving average have been tracking together and acting as major resistance on this chart. It would take a clear break up through this to suggest a larger corrective rally might be getting under way.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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